Karachi Energy Woes & K-Electric

Karachi Lights

Karachi at night

K-Electric Limited — the now privatised entity which powers a city of 20 million people — has been wanting to convert its two power plants from oil to coal. But for some incomprehensible reason, National Electric Power Regulatory Authority (Nepra) keeps delaying the approval.

Karachi energy woes are bringing the city to a halt. Amidst this chaos K-Electric, a private company is striving hard to serve its customers. It’s the only way, by serving its customers, that it can hope to make a profit. K-Electric has been pre-planning, anticipating, and doing all it can to bring costs down, and as a result bring more of the goods that its customers demand. This is the essence of having private ownership. The government owned company Nepra on the other hand doesn’t need to make a profit. It’s owned by everyone in the country, which also means it’s owned by no one. It gets funding when things go from bad to worse. Nepra is slow, reactive, and lethargic. It is dragging its feet, and delaying the approval that would save a lot of money and provide a lot more and cheaper electricity.

Recognising the importance of coal well early, K-Electric started working on converting its furnace oil-based generation to coal-based generation way before the federal government even introduced coal conversion in the National Power Policy, 2013.

Informed sources suggest that K-Electric has been pursuing regulatory approvals with Nepra for over a year now.

Karachi Electric

K-Electric

No matter the reason, one thing is clear and it is that the public company is the problem. Whether it’s because of sheer red tape or because those in government want the delay the approvals for political reasons. Had the company been private the politicians would have had lesser leverage to pull strings. This episode also illustrates another basic concept, of that of the undue influence a big government can have on businesses. Without this large and looming control of everything in the country the government would have stayed out of meddling with the free exchange between two private companies. Things would have gone a lot smoother and those in Karachi would have been enjoying cheaper electricity. The businesses, households, and the economy, all would have benefited. But now we are stuck with the government in control.

This divide between public and private ownership isn’t new. Plato hated private property. He wanted all property to be public property. He wanted only the select and able few to be the decision makers. The rest were to follow the orders or else there was the military to ensure compliance. Aristotle on the other hand totally disagreed. He stated that being an owner of the property made a person more responsible and more focused on maintaining it properly.

From this very concept comes the idea of the free markets. We can’t have free markets unless there is private ownership. A free exchange only takes place when  both owners agree to an exchange. They only agree when they value something more than what they are willing to give up, be it money or some other good.

The cost of delay:

Simple economics suggest that furnace oil-based generation (Rs 17/kWh) is almost twice as expensive as coal-based generation (Rs 9-10/kWh).

Although the K-Electric conversion project (420 MW) is only a component of its total capacity (3000 MW), Nepra’s inefficiency essentially translates into extra electricity cost for many, if not all consumers.

In terms of foreign exchange savings, basic calculations say the K-Electric conversion project (420 MW) will save around $ 300 million per year. Imagine the savings from the conversion of 2000 MW of IPPs waiting for the policy decision from Nepra.

Karachi energy woes are a result of government’s mismanagement and political interference. K-Electric is just one example of how in a free market private companies strive to serve the customers. Imagine other public organizations getting privatized.

Our salaries are highly dependent on our productivity, which is dependent on the kind of tools and capital goods that are available to us. Without electricity or with expensive electricity all these tools and technology become more expensive, making us less productive. This lower productivity seriously dampens further growth.

Investors balk at investing in a country with such political interference and lack of productivity, and take their funds elsewhere in the world. We have been reeling behind for far too long, and it is high time we catch up. K-Electric is a wonderful example of how private ownership helps serve the customers. We know what needs to be done to raise our standard of living. Are we ready to take that step?

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